Canadian dollar weakens reaching a 2-year low against dominant US counterpart

The Canadian dollar weakened to a two-year low against its U.S. counterpart on Tuesday as the prospect of inflationary U.S. economic policy bolstered the greenback and widened the gap between U.S. and Canadian bond yields.

 

The loonie was trading 0.2 per cent lower at 1.3945 to the U.S. dollar, or 71.71 U.S. cents, after touching its weakest intraday level since October 2022 at 1.3967.

 

“The loonie is joining the rest of the G10 as the USD continues to take centre stage,” said Amo Sahota, director at Klarity FX in San Francisco.

 

“The Trump team is taking shape and unsurprisingly it looks like the team that will lean into the election pledges. That plays into firmer inflation, greater spending and continued uncertainty on the extent of the tariff impacts.”

 

The U.S. dollar rose to a six-month high against a basket of major currencies, buoyed by expectations U.S. President-elect Donald Trump will impose inflationary import tariffs.

 

Canada’s energy industry does not expect Trump’s broad plans for protectionist trade measures to include tariffs on Canadian oil imports, because many U.S. refineries rely on barrels from north of the border.

 

The loonie’s decline was less than for all the other Group of Ten currencies.

 

Canada moved to end labour disputes at the ports of Vancouver and Montreal, citing economic damage and the potential for driving away trading partners.

 

The Canadian 10-year yield rose 8.9 basis points to 3.271 per cent. Still, the gap between it and the U.S. equivalent widened by 3.3 basis points to roughly 116 basis points in favour of the U.S. note, the widest spread in LSEG data going back to 1995.

 

“The widening yield spread is hard to argue against and will keep the loonie on the ropes,” Sahota said.

 

 

 

This article was first reported by Reuters